A compilation of useful articles on your coursework. Tyler Cowen is a professor of economics at George Mason University plus two book reviews (from 1964 and 1992. Can you spot which is which?)

The New Deal Didn’t Always Work, Either (NY Times)
By TYLER COWEN
Published: November 21, 2008
MANY people are looking back to the Great Depression and the New Deal for answers to our problems. But while we can learn important lessons from this period, they’re not always the ones taught in school. The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention; the truth is that Roosevelt changed course from year to year, trying a mix of policies, some good and some bad.
If I were preparing a “New Deal crib sheet,” I would start with the following lessons:
MONETARY POLICY IS KEY As Milton Friedman and Anna Jacobson Schwartz argued in, “A Monetary History of the United States,” the single biggest cause of the Great Depression was that the Federal Reserve let the money supply fall by one-third, causing deflation. Furthermore, banks were allowed to fail, causing a credit crisis. Roosevelt’s best policies were those designed to increase the money supply, get the banking system back on its feet and restore trust in financial institutions.
A study of the 1930s by Christina D. Romer, a professor at the University of California, Berkeley (“What Ended the Great Depression?,” Journal of Economic History, 1992), confirmed that expansionary monetary policy was the key to the partial recovery of the 1930s. The worst years of the New Deal were 1937 and 1938, right after the Fed increased reserve requirements for banks, thereby curbing lending and moving the economy back to dangerous deflationary pressures.
Today, expansionary monetary policy isn’t so easy to put into effect, as we are seeing a shrinkage of credit and a contraction of the “shadow banking sector,” as represented by forms of derivatives trading, hedge funds and other investments. So don’t expect the benefits of monetary expansion to kick in right now, or even six months from now.
Still, the Fed needs to stand ready to prevent a downward spiral and to stimulate the economy once it’s possible.
GET THE SMALL THINGS RIGHT It’s not just monetary and fiscal policies that are important. Roosevelt instituted a disastrous legacy of agricultural subsidies and sought to cartelize industry, backed by force of law. Neither policy helped the economy recover.
He also took steps to strengthen unions and to keep real wages high. This helped workers who had jobs, but made it much harder for the unemployed to get back to work. One result was unemployment rates that remained high throughout the New Deal period.
DON’T RAISE TAXES IN A SLUMP The New Deal’s legacy of public works programs has given many people the impression that it was a time of expansionary fiscal policy, but that isn’t quite right. Government spending went up considerably, but taxes rose, too. Under President Herbert Hoover and continuing with Roosevelt, the federal government increased income taxes, excise taxes, inheritance taxes, corporate income taxes, holding company taxes and “excess profits” taxes.
When all of these tax increases are taken into account, New Deal fiscal policy didn’t do much to promote recovery. Today, a tax cut for the middle class is a good idea — and the case for repealing the Bush tax cuts for higher-income earners is weaker than it may have seemed a year or two ago.
WAR ISN’T THE WEAPON World War II did help the American economy, but the gains came in the early stages, when America was still just selling war-related goods to Europe and was not yet a combatant. The economic historian Robert Higgs, a senior fellow at the Independent Institute, has shown in his 2006 book, “Depression, War, and Cold War,” just how much the war brought shortages and rationing of consumer goods.
While overall economic output was rising, and the military draft lowered unemployment, the war years were generally not prosperous ones. As for today, we shouldn’t think that fighting a war is the way to restore economic health.
YOU CAN’T TURN BAD TO GOOD The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well. The bad policies made things worse. Today, that means we should restrict extraordinary measures to the financial sector as much as possible and resist the temptation to “do something” for its own sake.
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In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.

THE NEW DEAL* William E. Leuchtenburg: Franklin D. Roosevelt and the New Deal, 1932-1940. “The New American Nation Series.” (New York: Harper,1963

Leuchtenburg balances the evidence judiciously, he neither joins those, like SCHLESINGER: Arthur Schlesinger, Jr., who find only admirable flexibility and wise, instinctive revulsion from ideology in every twist and turn by Roosevelt, nor those who, like

Leuchtenburg takes the middle ground. For example, he substantially modifies John Franklin Carter’s assessment (in 1934), that “Roosevelt is essentially a broker. He has neither the will nor the power to move against the political currents of the day. He does not and cannot invent his policies.”

Correctly, Leuchtenburg points out that the Roosevelt Administration was “never simply a broker state.” Many new government officials did not act “simply as agents of the President, . . . [but] often pushed programs of their own which the President was compelled to accept” (p. 89).

Roosevelt believed and acted upon the principle that there was a public interest above that of any particular group. What Leuchtenburg does not emphasize is that business continued to have a larger share in that public interest than other groups.

As another example, Basil Rauch has argued that a second and more radical New Deal commenced in 1935, while Rexford Tugwell, and later Schlesinger, Jr., contended that it was instead a more conservative response: instead of seeking to transform America by reconstructing economic institutions, the second New Deal operated under the naive Brandeisian assumption that the classical market was recoverable.

Leuchtenburg emphasizes the “extraordinary developments of the decade.” He contends that the six years from 1933 to 1938 “marked a greater upheaval in American institutions than in any similar period in our history” (p. xv). Under Roosevelt the federal government reached out and extended its concern and control to many areas of American life that both national and local governments had previously neglected. Like most historians who came to maturity during or shortly after the Roosevelt years and who share the values which the New Deal shaped (and which may be said to still inform the liberal consensus), Leuchtenburg is impressed by the institutional and structural changes that the Roosevelt government introduced. By recognizing interest groups – “staple farmers, industrial workers, particular ethnic groups, and the new intellectual-administrative class” that had largely been unrepresented, the President “achieved a more just society” (p. 347). But this was a “halfway revolution”; it bypassed sharecroppers, slum dwellers, and most African Americans.

We must note the persistence of poverty and the failure of Roosevelt’s and later Administrations to lift that one-third of America – the “other America” as Michael Harrington has described it – above subsistence living. In contrast to Leuchtenburg’s sanguine statement that “some of these omissions were to be promptly remedied,” it is important in any assessment to realize, as Harrington, Leon Keyserling, and Gabriel Kolko have pointed out, how much remains and how little was accomplished.

As Leuchtenburg and other friends of the New Deal admit, Roosevelt never solved the persistent problem of depression–until the war boom. Always anxious about unbalanced budgets, he was basically a fiscal conservative. While not so doctrinaire as to sacrifice lives to a lingering faith in fiscal orthodoxy, the President, nonetheless, was unwilling in peacetime to create the huge deficits necessary to restore prosperity. Leuchtenburg, along with other historians, seems puzzled by Roosevelt’s failure in the seventy-fifth Congress. By celebrating his successes, perhaps Roosevelt had lulled some into complacency. More important, he had expended his political capital by 1936. The sense of crisis had passed, and the powers of personality, prestige, and patronage temporarily waned after years of success with a Congress that was frequently to the left of the man in the White House. Like most historians of the period, Leuchtenburg ends the New Deal at 1938 and shifts his attention to the coming of the war. (Despite Roosevelt’s statement that reform was stepping aside for Mr. Win-the-War, Dr. New Deal did not in fact prove superannuated but donned a new mask, and reform continued.) By neglecting do- mestic politics after 1938 and concentrating on foreign policy, Leuchtenburg overlooks the problems of mobilization-the sequence of unsuccessful agencies, the military-civilian rivalries, and the Administration’s struggle over expansion with the steel and aluminum indus- tries.

The Politics of Recovery: Roosevelt’s New Deal by Albert U Romasco. Oxford University Press, 1983.

Upon taking office, Franklin D. Roosevelt saw immense social unrest and pressure which threatened the political system. Particularly important was agitation from farmers, but more broadly from debtors of all kinds-silverites, urban elements, and many businessmen. This pressure could not be contained without action. Just what scenario in- action would have caused is not clear, though Europe offered plenty of possibilities.The system had to be changed in order to save it. So, FDR pushed for legislation and action that would be politically gratifying and that would earn some support through policy satisfaction. Romasco shows carefully how concerned FDR was that unless he took steps, the initiative would pass to other hands, more fragmented, more diverse, more radical, more uncontrollable. He supported action and legislation the policy content of which he found questionable, but that would contain the energy of agitation. Thus, the role of pressure.

But in each case, the pressures had some ambiguity, slack, and openings for different responses. FDR chose to interpret in a conservative bent, supporting the more cautious elements demanding change. He blocked the more radical: in money, rejecting the most inflationary and loose money proposals; in farming, rejecting cost-plus production subsidies; in business, rejecting nationalization and planning, and so on. New Deal legislation repeatedly requested considerable grants of discretionary authority to the executive, creating even more room for the importance of leadership and choice. Again, repeatedly, this discretion was used in a conservative way-to sterilize the monetarization of silver, for example. Frequently, the legislation created or legitimated public and private organizations, from the Work Projects Administration (WPA) to the National Labor Relations Board (NLRB) and trade unions belonging to the Congress of Industrial Organizations, which served the purpose of increasing state power and strengthening organizations loyal to FDR’s political goals. This strengthened the importance of the state, the autonomy of leadership’ the role of institutions in providing leverage for power, and the role of govern- ment in creating and defining constituencies.
Yet, the way FDR used the discretion of a leadership situation tells us a good deal about the distribution of power in society, hence about societal pressures. Romasco’s all too brief summary of FDR’s hierarchy of response (pp. 244-45) notes that the “first beneficiaries of the New Deal’s cornucopia included bankers of all sorts (bailed out from bankruptcy), commercial farmers of staple crops, large businessmen, home owners, states and cities.” Others were added later, but, as Romasco’s account shows, while the development of social security and the NLRB certainly annoyed the conservatives, this shift from First to Second New Deal also marked the decline of intervention in the management of firms and markets. Like the Swedish Social Democrats, FDR expanded the welfare state and some regulatory measures, but not public ownership or planning. Is this leadership or an expression of the balance of forces? Unlike the diehard conservatives, FDR thought some change essential. But the change was channeled and contained, repeatedly the more radical measures beaten off. Against the threat of populist agitation was also the pressure of private property. The view of FDR as a masterful politi- cian is a familiar one; so is the argument about the balance between undertaking reforms against the desires of capitalism. Romasco’s contribution lies in the careful articulation of these themes in the context of specific arguments over economic policy. In each policy area, he sets out the other policy options being pushed so that the reader is better able to understand the choices actually made, hence to consider alternative explanations of that choice. The result is a fine source for comprehending the New Deal as a policy battle in political terms.